Real estate investment trusts (REITs) focused on healthcare are having a bit of a bounce-back year in 2021. After producing a total return of -9.9% in 2020, healthcare REITs have generated an 11.9% total return through the end of April.
However, not all healthcare REITs have gotten off to a hot start this year. Two of the laggards are Community Healthcare Trust (NYSE: CHCT) and Medical Properties Trust (NYSE: MPW). That makes them stand out as excellent buys this June, since they each trade at an even more attractive valuation given their recent growth.
A great time to buy this long-term winner
Community Healthcare Trust has an excellent track record of growing shareholder value. Since its initial public offering in mid-2015, the REIT has generated a more than 220% total return. That's well above the S&P 500's roughly 85% total return during that time frame.
However, Community Healthcare Trust has gotten off to a slow start in 2021, with its stock price only rising about 1% through the end of May. That lackluster performance comes even though the REIT has continued growing. For example, its AFFO per share increased by 16.3% year over year during the first quarter. Helping drive the REIT's growth was a steady string of acquisitions.
After purchasing $127.2 million of properties in 2020, the REIT secured $69.8 million of deals in 2021's first quarter. It also signed agreements to buy several more properties, which should help drive future growth.
That steady stream of deals should enable Community Healthcare Trust to continue growing its AFFO per share and 3.57%-yielding dividend. It has already increased its payout each quarter since its IPO, which seems likely to continue. The company has a conservative balance sheet giving it the financial flexibility to continue making deals. Meanwhile, it has a large market opportunity due to its broad focus on acquiring a wide variety of outpatient healthcare facilities in non-urban communities.
The buying binge continues
Medical Properties Trust also has an excellent track record of creating value for its investors. Since its IPO in 2005, the hospital-focused REIT has generated a more than 525% total return. That has crushed the S&P 500's roughly 385% total return during that time frame.
However, like Community Healthcare, Medical Properties has underperformed this year despite getting off to a great start. Overall, its shares have declined by about 1.56% even though its normalized FFO per share jumped 13% in the first quarter.
Helping drive that growth was the $3.6 billion of investments it closed last year. Meanwhile, it has gotten 2021 off to an excellent start by securing another $1.1 billion of new investments in the first quarter, which should help drive normalized FFO growth over the coming quarters.
The REIT's steady stream of acquisitions has enabled it to routinely increase its 5.3%-yielding dividend. It has given investors a raise in eight straight years, growing its payout at a 5% compound annual rate. That's well above its healthcare REIT peers, which have seen their payouts decline by 11% in recent years, due in large part to poorly timed investments in senior housing.
That upward-trending dividend appears poised to continue. Driving that view is the REIT's solid financial profile and massive addressable market of more than $500 billion of operator-owned hospitals that it could acquire.
Great healthcare REITs at even better values
With shares of Community Healthcare and Medical Properties underperforming this year, they now trade at even cheaper prices, given the double-digit increase in their FFO during the first quarter. Add that to their attractive, growing dividends, and they stand out as excellent buys this month for investors seeking a healthcare-related real estate play.